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Published on 3/07/2020 12:19:18 PM | Source: ICICI Direct

FMCG Sector - Changing operational dynamics, new trend emergence in consumption space By ICICI Direct

Posted in Broking Firm Views - Sector Report| #FMCG #Sector Report #ICICI Direct

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Changing operational dynamics, new trend emergence in consumption space…

The Indian consumer sector has been going through volatile times as the lockdown across the country, due to Covid-19, has disrupted the entire manufacturing, supply chain & retail operations. Though essential categories continue to see strong growth due to pre-buying or bulk buying, some discretionary categories witnessed a slack in demand conditions. New trends have also emerged with sanitisers, disinfectants & immunity booster products staring at exponential growth in next few years. Even distribution channels have been seeing a swift change with e-commerce & digital space gaining prominence. Product companies have been tying up with food delivery aggregators to directly reach out to consumers.

 

Key observations from managements & distributors interaction

In our post result discussions with management and distributors of consumer companies (FMCG, paints, consumer durables, retailers, multiplexes), we observed certain trends & their impact on consumer sector.

 

FMCG

* Manufacturing & supply chain operations of FMCG companies were halted for 20-25 days in the first phase of the lockdown with only essential being allowed to manufacture. Lockdown relaxation started on April 20 with steady opening up of manufacturing & distribution. The regulation was distinguished zone wise (red, orange and green). Non-essential manufacturing started with 33% capacity & social distancing norms. Currently, operations are still at ~75-80% of last year’s capacity  Most companies are largely fulfilling high demand for essentials. Some categories where demand remained intact/increased are soaps, atta, rice, edible oil, milk based products, biscuits, tea, packaged foods (noodles). However, discretionary categories like skin care, cosmetics, hair oils, ice creams, carbonated drinks, juices are seeing a dismal demand environment. Companies are realigning their manufacturing to produce more of essential & higher demand products

* Carbonated drinks took a massive hit in April with ~50% reduction in volumes as restaurants & cafes remained closed. Notably, 40-45% of their sales are generated in the June quarter

* Packaged foods (specifically noodles, biscuits, oats) sales have seen strong growth as ‘out of home’ consumption is completely halted. On the contrary ultra-high temperature (UHT) milk demand has been impacted with visible signs of down-trading

* Saloon based categories like hair colour, skin care products have seen significant sales decline. Moreover, these categories would bear the brunt for prolonged period as saloons would take much longer to reopen

* Companies are facing challenges in increasing production with unavailability of labour at various levels of supply chain. Inventory at trade, which used to be 10-20 days, has dried up completely and they are currently holding two to three days inventory. Companies believe a complete lifting of lockdown would lead to smooth restocking of the trade channel to previous levels

 

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